ProfessorBainbridge.com

SB 826: Keith Paul Bishop Responds to the Standing Issue

Professor Bainbridge Asks "Would They Have Standing?" https://t.co/2eOni8vXMp

— Professor Bainbridge (@ProfBainbridge) October 8, 2018

But would they have standing?

Investors should sue California over its corporate gender quotas right now https://t.co/c7IFW8Owwg via @LibertyUnyieldi I'm not a standing expert, but would be interested in those who are analyzing the argument.

— Professor Bainbridge (@ProfBainbridge) October 7, 2018

Keith Paul Bishop on California SB 826 (the gender quota bill)

Keith Paul Bishop blogged up a storm on the new bill. On September 25th:

Although I have been writing about this bill for several months, it has only recently attracted widespread notice and criticism.  Professor Grundfest recently posted a working paper concluding:

"The bill will increase the number of board seats occupied by women by trivial amounts, if at all.  These trivial changes will, however, come at great risk to the evolution of affirmative action jurisprudence.  California's own legislative analysis concludes that 'the use of a quota-like system, as proposed by this bill … may be difficult to defend.'  A successful equal rights challenge means that SB 826 will have no effect at all.  The legislation thus offers a poor bargain for diversity advocates: gain a trivial number of board seats, if any, but increase the risk of judicial rulings inimical to broader affirmative action initiatives."

And then SEC Commissioner Hester Peirce made the following observation in a speech given in California:

"Counting the number of female directors may tell you something about how well a company is run. Or it may simply tell you that the company has more female directors. There are studies going both ways.  In most cases, the companies themselves are ill equipped to make these determinations."

On September 30th:

Yesterday, Governor Brown signed the bill into law.  His signing messageacknowledged that the bill may never be implemented:

"There have been numerous objections to this bill and serious legal concerns have been raised. I don't minimize the potential flaws that indeed may prove fatal to its ultimate implementation."

It turns out that Governor Brown's approval, which came on the last day on which he could sign bills enacted in this session, may have been influenced by the battle in the U.S. Senate Judiciary Committee over the nomination of Judge Brett Kavanaugh:

 "Nevertheless, recent events in Washington, D.C.--and beyond--make it crystal clear that many are not getting the message."

Lest there be any doubt about this reference, Governor Brown copied the United States Senate Judiciary Committee on his signing message.

Although SB 826 may be challenged on several unrelated constitutional grounds, I wouldn't be surprised to see a successful challenge mounted in the Delaware courts on the basis of the "internal affairs doctrine".  See Why California's Gender Quota Bill Is More Likely To Be Unconstitutional Than California's Pseudo-Foreign Corporation.

I agree, of course. 

Back to Keith's blog on October 2nd:

As noted in Sunday's post, Governor Brown included a signing message with his approval of SB 826, California's new board gender quota law.  I took a look at the case law and quickly found several examples of California courts citing gubernatorial signing messages.  See, e.g., Gerawan Farming, Inc. v. Agricultural Labor Relations Bd., 3 Cal. 5th 1118, 1132 (2017) and Arias v. Kardoulias, 207 Cal. App. 4th 1429, 1435 (2012). 

But why cite the signing message?  Although it seems to me that a signing message isn't legislative history (the legislature has already done its thing), at least one California Court of Appeal has characterized a gubernatorial signing message as legislative history.  Nguyen v. Nguyen, 158 Cal. App. 4th 1636, 1660 (2008). 

Governor Brown's acknowledgement of the potential constitutional infirmities of SB 826 may well make it into case law.  When President Franklin Roosevelt signed the Urgent Deficiency Appropriation Act of 1943, he declared:

"The Senate yielded, as I have been forced to yield, to avoid delaying our conduct of the war.  But I cannot so yield without placing on record my view that this provision is not only unwise and discriminatory, but unconstitutional."

H. Doc. 264, 78th Cong., 1st Sess.  Ultimately, the U.S. Supreme Court concurred in  United States v. Lovett, 328 U.S. 303, 313 (1946).  

On October 4th:

Some have asked whether corporation incorporated in other countries might be subject to this new law.

He goes on to examine the legal and practical issues.

And on October 5th:

California's recent enactment of a gender quota for boards of publicly held corporations may cause some foreign corporations to consider moving the location of their principal executive offices.  The new law, Corporations Code Section 301.3, will apply to publicly held foreign corporations having their principal executive offices in California "according to the corporation’s SEC 10-K form". 

He goes on to explore the factors such companies will have to consider in deciding whether to leave California.

SEC Commissioner Hester Pierce says corporate law is public interest law, which is true, but I said it first!

From her address to the Michigan Law School:

I want to urge you to expand your vision of how one can serve the public as a lawyer. Representing corporations also can be a form of public interest law because companies contribute so much to the well-being of society. I am not referring to corporate sponsorship of the local minor league baseball team, food bank, or youth orchestra. These charitable activities are laudable, but, to find something good, we need not look beyond the core profit-making activities of the corporation.

The hunt for profit drives companies to strive to identify and meet people’s needs using as few resources as possible. Companies communicate with their customers and suppliers through the price system. People tell companies what they value when they pay for the products and services those companies offer. Suppliers, by raising or lowering prices, tell companies how valuable the resources are that the companies use. Companies respond to what their customers and suppliers tell them. In this way, companies help to ensure that people spend their time wisely and that resources are used for the things society values most. Companies combine the diverse and complementary talents of their employees to research, develop, explore, produce, sell, and provide services to willing customers. In these activities, corporations play an important role in expanding scientific and technological knowledge, enabling people to profit from their hard work, and ensuring that society’s resources are allocated to the uses we most value.

As a lawyer representing companies in the courtroom, the boardroom, or the contract negotiating room, you are helping to build mutually beneficial relationships between companies and their creditors, shareholders, employees, suppliers, and communities. You are part of the process for ensuring that resources and human ingenuity are being put to their best use. It is easy to lose sight of the importance of your role particularly when you are an overtired attorney mired in a document-intense business dispute or interminable contract negotiation.

I couldn't agree more. Especially because I said the very same thing over a decade ago, in my article Reflections on Twenty Years of Law Teaching, 56 UCLA Law Review Discourse 1 (2008):

Legal education pervasively sends law students the message that corporate lawyering is a less moral and socially desirable career path than so-called “public interest” lawyering.[1]The corporate world is viewed as essentially corrupting and alienating, while true self-actualization is possible only in a Legal Aid office.

Our students get these messages not only in law school, of course, but also in the media. Films like “A Civil Action” or “Erin Brockovich” illustrate the general ill repute in which corporations—and corporate lawyers—are held, at least here in Hollywood.

In my teaching, I have chosen to unabashedly embrace a competing view. I tell my students about Nicholas Murray Butler, president of Columbia University and winner of the Nobel Peace Prize, who wrote that: “The limited liability corporation is the greatest single discovery of modern times. Even steam and electricity are less important than the limited liability company.”

I tell them about journalists John Micklethwait and Adrian Wooldridge, whose magnificent history, The Company, contends that the corporation is “the basis of the prosperity of the West and the best hope for the future of the rest of the world.”[2]

There is no doubt that the corporation is now the key economic institution in Western nations. In the United States, for example, the corporation is the predominant form of business organization by every measure except sheer number of firms. According to recent census data, although corporations account for only about one fifth of all business organizations, they bring in almost 90% of all business receipts.

The corporation also has proven to be a powerful engine for focusing the efforts of individuals to maintain economic liberty. Because tyranny is far more likely to come from the public sector than the private, those who for selfish reasons strive to maintain both a democratic capitalist society and, of particular relevance to the present argument, a substantial sphere of economic liberty therein serve the public interest.  Put another way, private property and freedom of contract were “indispensable if private business corporations were to come into existence.”[3]In turn, by providing centers of power separate from government, corporations give “liberty economic substance over and against the state.”[4]

Yet, two centuries ago, leading business and economic thinkers – including the great Adam Smith – derided the joint stock company. Few businesses were organized as chartered companies. Each company’s charter required a special legislative act. In many places, legislatures granted charters only to quasi-public entities, such as railroads and canals. In most, legislatures rarely resisted the temptation to revise or even repeal existing charters arbitrarily. Even in the United States, where the Supreme Court’s famous Dartmouth Collegedecision gave corporations substantial constitutional protections at a relatively early date, such legislative meddling remained commonplace.

And so I ask my students: What explains the relatively rapid development in the mid-19th century of a recognizably modern corporation and, in turn, that entity’s emergence as the dominant form of economic organization?

The answer has to do with new technologies – especially the railroad – requiring vast amounts of capital, the advantages such large firms derived from economies of scale, the emergence of limited liability that made it practicable to raise large sums from numerous passive investors, and the rise of professional management.

For the most part, these advantages remain true today. The corporation remains the engine of economic growth, both at the level of giants like Microsoft and garage-based start-ups.

The rise of the corporate form thus has “improved the living standards of millions of ordinary people, putting the luxuries of the rich within the reach of the man in the street.”[5]The rising prosperity made possible by the tremendous new wealth created by industrial corporations was a major factor in destroying arbitrary class distinctions, enhancing personal and social mobility. Many of the wealthiest businessmen of the latter half of the 19th Century and the 20th Century began their careers as laborers rather than as scions of coupon-clipping plutocrats.

And so I put it to my students this way: You want to help make society a better place? You want to eliminate poverty? Become a corporate lawyer. Help businesses grow, so that they can create jobs and provide goods and services that make people’s lives better.

The goal isn’t just to make my students feel better about themselves. I firmly believe that too many of our students, when they get out in practice, may be more willing to act in ways that are ethically gray—to act as facilitators rather than gatekeepers—if they’ve been told repeatedly that they’ve already “sold out.”[6]If more legal academics were to celebrate the pro-social aspects of corporate practice, perhaps our students would be better gatekeepers once they get out in practice.

California SB 826--The Board Gender Quota Bill--Should Be Unconstitutional Under the Commerce Clause

Professor Bainbridge: California Corporate-Board Quota Law Unlikely to Survive a Constitutional Challenge https://t.co/0NTY2uNty6

— Professor Bainbridge (@ProfBainbridge) October 2, 2018

What is a joint stock association?

The always interesting Keith Paul Bishop notes that:

California's statutory provisions pertaining to unincorporated associations can be found in Title 3 of the Corporations Code.  Part 3 of Title 3 is devoted to criminalizing various activities on the part of directors, officers and agents of joint stock associations.  Nowhere, however, Part 3 define what constitutes a joint stock association.  Nor does it appear that there are any decisions citing these statutes.  The mystery of what exactly constitutes a joint stock association is deepened by the existence of other provisions within the Corporations Code that refer to joint stock companies (e.g., §§ 5065, 25013, and 29514).  Is a "joint stock association" a "joint stock company" by another name or an entirely different entity? 

According to a 1916 law review article, a joint stock association at common law was "a group of individuals organized for certain purposes into an association similar to a partnership, but, unlike a partnership, having a capital stock divided into shares transferable by the owner".  I. Maurice Wormser, The Legal Status of Joint Stock Associations, 3 Fordham L. Rev. 1 (1916). 

This piqued my interest. Book 28 of the 1917 edition of McKinney's Consolidated Laws of New York Annotated covers "Joint Stock Association Law," section 2 of which states:

Christine Rossini's English as a Legal Language tells us that:

So far it looks like a "joint stock association" in act is a "joint stock company" by another name, but let us persevere:

The Georgia Nonprofit corporation statute (Ga. Code Ann. § 14-3-1108) supports that conclusion:

“Joint-stock association” includes any association of the kind commonly known as a joint-stock association or joint-stock company and any unincorporated association, trust, or enterprise having members or having outstanding shares of stock or other evidences of financial and beneficial interest therein, whether formed by agreement or under statutory authority or otherwise, but shall not include a corporation, partnership, limited liability partnership, limited liability company, or nonprofit organization. A joint-stock association as defined in this paragraph may be one formed under the laws of this state, including a trust created pursuant to Article 2 of Chapter 12 of Title 53, or one formed under or pursuant to the laws of any other state or jurisdiction.

DGCL § 254(a) is similar:

The term “joint-stock association” as used in this section, includes any association of the kind commonly known as a joint-stock association or joint-stock company and any unincorporated association, trust or enterprise having members or having outstanding shares of stock or other evidences of financial or beneficial interest therein, whether formed or organized by agreement or under statutory authority or otherwise and whether formed or organized under the laws of this State or any other jurisdiction, but does not include a corporation, partnership or limited liability company.

Yet, as a law review article explains, that definition presents its own set of problems:

Although the definition of a “joint-stock association” is quite broad and would seem to pick up almost all forms of non-corporate entities, there exists substantial ambiguity in the statute as to exactly what is a joint stock association given the exclusion of partnerships and corporations from the definition. For example, is a joint venture (which is nothing more than a partnership under another name) a joint-stock association under Delaware law? Similarly, would a joint venture be considered a joint-stock association if the agreement creating the joint venture provided that all the investors would receive shares and that the joint venture is not a partnership? 

Curtis W. Huff, Choice of State of Incorporation -- Texas Versus Delaware: Is It Now Time to Rethink Traditional Notions?, 31 Bull. Bus. L. Sec. St. B. Tex. 9, 37 (DEC 1994).

Make of it what you will.

I hate to break it to Josh Fershee but "Judgmenty" is not a word

Nonetheless I enjoyed his first and second posts on the corporate governance and corporate law aspects of Nike's controversial ad using Colin Kaepernick.

Ann Lipton revisits the corporate governance and corporate law aspects of les Moonves ouster at CBS

Here

Henderson and Bainbridge Podcast on Outsourcing the Board of Directors

Is the duty of loyalty really shrinking?

Interesting new article by Julian Velasco:

Fiduciary duties comprise an integral part of corporate law. It is generally understood that directors owe the corporation and its shareholders two fiduciary duties: the duty of care and the duty of loyalty. Although both duties are firmly established in corporate law, they are not treated equally. It is generally understood that the duty of loyalty is enforced far more rigorously than the duty of care. The justification for this dichotomy is twofold. First, differential treatment is appropriate because of the relative urgencies of the underlying subject matter: loyalty issues pose greater risks than do care issues. Second, the deference of the business judgment rule is made possible by the rigor of the entire fairness test: directors who are not conflicted can be trusted. In this Article, I demonstrate that the duty of loyalty is not enforced as rigorously as is commonly believed. Over fifty years ago, Professor Harold Marsh argued that the duty of loyalty had been watered down substantially over the preceding century. I argue that the diminishment of the duty of loyalty has continued and increased substantially since the time of his writing. I catalog various legal developments that have had the effect of curtailing the enforcement of the duty of loyalty significantly. As a result of these developments, I maintain that the corporate law reality does not currently match the corporate law theory. I argue that some sort of realignment is necessary: either the law must be amended to correspond to the theory, or the theory must be revised to reflect reality.

Velasco, Julian, The Diminishing Duty of Loyalty (August 27, 2018). 75 Wash. & Lee L. Rev. 1035 (2018). Available at SSRN: https://ssrn.com/abstract=3239605

To what extent should a board of directors be liable for not preventing a company's CEO from using racial slurs?

Bloomberg reports:

A Papa John's investor filed a putative class action against the pizza chain Aug. 30 for allegedly misleading shareholders about Schnatter's conduct, not having adequate systems in place to prevent inappropriate workplace conduct, and negatively affecting the company's business and reputation. Schnatter, who is also named as a defendant in the U.S. District Court for the Southern District of New York complaint, resigned from his position as chairman of the Papa John's board in July after reports that he'd used a racial slur on a conference call.

Schnatter's conduct hurt the company's bottom line, the investor complaint alleged. Pizza sales slowed after Schnatter's use of the slur became public, according to a Bloomberg report. The company's stock price also declined by 4.84 percent, the complaint said.

I found myself rolling my eyes as I read this silliness. It immediately called to mind Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961 (Del. Ch. 2003), aff'd, 845 A.2d 1040 (Del. 2004):

The market for MSO products is uniquely tied to the personal image and reputation of its founder, Stewart. MSO retains “an exclusive, worldwide, perpetual royalty-free license to use [Stewart's] name, likeness, image, voice and signature for its products and services.”7 In its initial public offering prospectus, MSO recognized that impairment of Stewart's services to the company, including the tarnishing of her public reputation, would have a material adverse effect on its business. ...

Stewart was accused of insider trading in Imclone stock:

Ultimately Stewart's prompt efforts to turn away unwanted media and investigative attention failed. Stewart eventually had to discontinue her regular guest appearances on CBS' The Early Show because of questioning during the show about her sale of ImClone shares. After barely two months of such adverse publicity, MSO's stock price had declined by slightly more than 65%. In August 2002, James Follo, MSO's chief financial officer, cited uncertainty stemming from the investigation of Stewart in response to questions about earnings prospects in the future.

Plaintiff sued claimed that "the director defendants and defendant *971 Patrick breached their fiduciary duties by failing to ensure that Stewart would not conduct her personal, financial, and legal affairs in a manner that would harm the Company, its intellectual property, or its business." The court tossed the claim:

Even if I accept that the board knew that Stewart's personal actions could result in harm to MSO, it seems patently unreasonable to expect the Board, as an exercise of its supervision of the Company, to preemptively thwart a personal call from Stewart to her stockbroker or to fully control her handling of the media attention that followed as a result of her personal actions, especially where her statements touched on matters that could subject Stewart to criminal charges. Plaintiff has not cited any case to support this new “duty” to monitor personal affairs. Since the defendant directors had no duty to monitor Stewart's personal actions, plaintiff's allegation that the directors breached their duty of loyalty by failing to monitor Stewart because they were “beholden” to her is irrelevant. Count II is dismissed for failure to state a claim.

The court further explained that:

Regardless of Stewart’s importance to MSO, she is not the corporation. And it is unreasonable to impose a duty upon the Board to monitor Stewart’s personal affairs because such a requirement is neither legitimate nor feasible. Monitoring Stewart by, for example, hiring a private detective to monitor her behavior is more likely to generate liability to Stewart under some tort theory than to protect the Company from a decline in its stock price as a result of harm to Stewart’s public image.

So the claim that Papa John's board "is liable not having adequate systems in place to prevent inappropriate workplace conduct" should be a non-starter.

Keith Paul Bishop on the De Facto Merger Doctrine in California

Keith Paul Bishop responds to my post about the status of the de facto merger doctrine under California law, in which I tagged him:

As an initial matter, it must be understood that there are at least two applications of the de facto merger doctrine.  The first, as described above, imposes a selling corporation's debts and liabilities on a successor corporation in an asset sale transaction.  The second involves whether shareholders of the selling corporation will enjoy voting and dissenters rights in an asset sale transaction.  In Jones v. H.F. Ahmanson & Co., 1 Cal. 3d 93, 117 (1969), Justice Roger Traynor noted that "Judicial protection has also been afforded the shareholder who is the victim of a "de-facto merger" to which he objects" (citing Farris v. Glen Alden Corp. 123 A.2d 25 (1958)).  

The Ahmanson case predates the current General Corporation Law which largely moots the discussion by defining a "reorganization" to include a sale-of-assets reorganization.  Cal. Corp. Code § 181(c).  See also When a Sale of Assets is not a "Sale-of-Assets Reorganization".  

Thanks!

Francis Pileggi on Brett Kavanaugh on Delaware Corporate Law

Here

Does California Recognize the De Facto Merger Doctrine Outside the Successor Liability Context?

I awoke this morning to find I had been tagged in the following tweet:</p?

Nice potential example for corporations casebook, if it gets to an opinion. (cc: @ProfBainbridge) https://t.co/kdtAnEPpOW

— Dave Hoffman (@HoffProf) September 13, 2018

It is true that California recognizes the de facto merger doctrine in successor liability cases. In Marks v. Minnesota Mining & Mfg. Co., 232 Cal. Rptr. 594 (Cal. App. 1st Dist. 1986), for example, "plaintiff filed a complaint for strict products liability, breach of warranty, and negligence against Minnesota Mining and Manufacturing Co. (3M) and McGhan Medical Corporation. 3M and McGhan Medical Corporation" alleging that they had manufactured a defective "inflatable mammary prosthesis used in breast augmentation surgery." The prosthesis had been manufactured by McGhan. Subsequently thereto McGhan's assets were sold to 3M, but 3M did not acquire McGhan's liabilities. 

In general, in such cases the liabilities remain with the seller and the purchaser takes the assets free of any attached liabilities. 

As the Third Circuit has explained:

Under the well-settled rule of corporate law, where one company sells or transfers all of its assets to another, the second entity does not become liable for the debts and liabilities, including torts, of the transferor.

Four generally recognized exceptions qualify this principle of successor nonliability. The purchaser may be liable where: (1) it assumes liability; (2) the transaction amounts to a consolidation or merger; (3) the transaction is fraudulent and intended to provide an escape from liability; or (4) the purchasing corporation is a mere continuation of the selling company.

The successor rule was designed for the corporate contractual world where it functions well. It protects creditors and dissenting shareholders, and facilitates determination of tax responsibilities, while promoting free alienability of business assets. The doctrine reflects the general policy that liabilities adhere to and follow the corporate entity. However, when the form of the transfer does not accurately portray substance, the courts will not refrain from deciding that the new organization is simply the older one in another guise.[1]

As noted, California does recognize the de facto merger doctrine in successor liability cases arising from tort. But the case to which Professor Hoffman drew my attention is not a traditional tort case involving successor liability:

Sixteen former Dickstein Shapiro partners have sued Blank Rome claiming the 2016 merger between the two firms was inappropriately styled as a sale to avoid paying out more than $4 million in capital accounts owed to former partners.

“Blank Rome’s transactional attorneys tried to ‘play cute’ by structuring the merger of Dickstein Shapiro into its law firm by the artifice of labeling it as an ‘asset sale’ for the solitary purpose of defrauding former Dickstein Shapiro partners (who were necessarily not going to be a part of Blank Rome),” wrote the former Dickstein Shapiro’s lawyers at Kabateck Brown Kellner and The Kellner Law Group in Los Angeles in a complaint filed Wednesday in Los Angeles Superior Court.

“This lawsuit has no merit and we intend to vigorously defend it,” a Blank Rome spokeswoman said in email Thursday morning.

The lawsuit, filed on behalf of 15 partners who left Dickstein in the run-up to the Blank Rome deal and one who retired about a month prior to the February 2016 tie-up, seeks a declaratory judgement that the deal was a “de facto merger.” Such a finding, the former partners claim, would leave Blank Rome liable for Dickstein’s debts and in breach of the defunct firm’s partnership agreement with former partners, which required the firm to pay back departing partners’ capital accounts with interest.

Instead, this case arguably is more analogous to cases in which shareholders seek to use the de facto merger doctrine so as to obtain voting or appraisal rights in a transaction designed to deprive them of those rights.

Assume that Buyer Corporation and Target Inc. agree that Buyer will acquire Target via a reverse triangular merger. As a result, Buyer's shareholders will not be entitled to vote on the merger nor will they be eligible for appraisal rights. Disgruntled Buyer shareholders sue, arguing that the reverse triangular merger is a de facto merger. If the court agrees, the court will ignore the form of the transaction, treat the deal as a standard two‑party merger, and grant both Buyer and Target shareholders the right to vote and the right to dissent.

Why did the Delaware courts and the Pennsylvania legislature reject the de facto merger doctrine? Is it simply that they prefer corporate interests to shareholder interests? No. The statute provides various ways of accomplishing an acquisition. It does so because no one acquisition technique is always appropriate. If we let courts recharacterize the statutory alternatives, we increase uncertainty and we eliminate the wealth‑creating advantages of having multiple acquisition formats.

Assuming the court decides that this case is more akin to de facto merger cases brought by shareholders than those brought by tort claimants in products liability cases, the pertinent question is whether California recognizes de facto merger outside the successor liability context.

A quick Westlaw search this morning seemed to kick up only successor liability cases. So I’m going to tag in Keith Paul Bishop.

 

[1]Polius v. Clark Equipment Co., 802 F.2d 75, 77-78 (3d Cir 1986) (citations omitted).

A short essay on corporate philanthropy

A.P. Smith Manufacturing Co. v. Barlow, the most frequently cited example of cases validating corporate social responsibility, upheld a corporate charitable donation on the ground, inter alia, that “modern conditions require that corporations acknowledge and discharge social as well as private responsibilities as members of the communities within which they operate.”[1]Ultimately, however, the differences between Barlowand cases like Dodgev. Ford Motor Co.[2]have little more than symbolic import. As the Barlowcourt recognized, shareholders’ long-run interests are often served by decisions (such as charitable giving) that appear harmful in the short-run. Because the court acknowledged that the challenged contribution thus could be justified on profit-maximizing grounds, its broader language on corporate social responsibility is arguably mere dictum.

As we have seen, A. P. Smith Manufacturing Co. v. Barlow,[3]is often cited as a leading corporate social responsibility decision. Ironically, however, the specific question presented therein—the validity of corporate philanthropy—has been resolved in a more narrow way. Corporate charitable donations are subject to attack under two doctrines: ultra vires and breach of fiduciary duty. Neither is likely to succeed, so long as the amount in question is reasonable and some plausible corporate purpose may be asserted.

Virtually all states have adopted statutes specifically granting corporations the power to make charitable donations,[4]which eliminates the ultra vires issue. Although these statutes typically contain no express limit on the size of permissible gifts, courts interpreting the statutes require corporate charitable donations to be reasonable both as to the amount and the purpose for which they are given.[5]The federal corporate income tax code’s limits on the deductibility of corporate charitable giving are often used by analogy by courts seeking guidance on whether a gift was reasonable in amount.

As for breach of fiduciary duty claims, the principles announced in Dodge v. Ford Motor Co.[6]arguably require that corporate philanthropy redound to the corporation’s benefit. As Shlensky v. Wrigley[7]suggests, however, reasonable corporate donations should be protected by the business judgment rule.[8]Consequently, Barlow’s discourse on corporate social responsibility properly is regarded as mere dicta.